Nations built by Businesses (SMEs)
SMEs are Small and Medium Enterprises that play an important role in the economies of most nations, in particularly developing countries. The key factors of SMEs are to create job vacancies and increase global economic development, whilst accounting for a handful of businesses worldwide. Having represented about 90% of businesses around the world they positively affect 50% of employment worldwide. When formal SMEs are involved in the national income (GDP) in emerging countries they provide up to 40% increase and when informal SMEs are involved it’s contribution is much higher.
It is estimated that 600 million job vacancies will need to be filled by the year 2030 to incubate the growing workforce. The role of SMEs in this case would be developing itself further for this period.
On the other hand, access to finances acts as a block to the growth of SMEs. To make this worse, SMEs do not have as equal chances as large firms to receive bank loans. Their current access to finances includes internal funds, cash from friends and family in order to launch and run their enterprises. Developing countries like East Asia and the Pacific are known to share the largest financial gap by 46%, followed by Latin America and the Caribbean with 23%, and Europe & Central Asia by 15%.
There are a few lending operations available for SMEs such as Lines of Credit which involve dedicated back financing over a long period of time to support investment. Another form of lending is Partial Credit Guarantee Schemes which supports the success of SMEs through design. Lastly, Early Stage Innovation Finance provides equity and debt to help with the start up of these enterprises.
SMEs also play a big role in the political economy by aiding the strength & promotion of reforms. It promotes policies that support a level playing field, whilst the thriving SME sector empowers and grows a strong middle class. This then serves to seek democratic reform and a well judged economic governance. On most occasions an SME is considered as a company if they have a turnover of under $50 million, and between 10-250 employees.
Examples of nations that are experiencing the fastest growth in SMEs
United States: The Entrepreneurial Powerhouse:
The United States stands as a prime example of a nation whose economic strength is deeply rooted in the success of SMEs. Small businesses in the U.S. account for a significant portion of job creation, contributing to the resilience and dynamism of the American economy. According to the U.S. Small Business Administration, small businesses are responsible for creating two-thirds of net new jobs in the country. Iconic companies like Apple, Microsoft, and Google all began as startups, demonstrating the transformative potential of SMEs in shaping a nation's economic destiny (US Chamber 2020).
Germany: The Mittelstand Miracle:
Germany's economic prowess is often attributed to its Mittelstand, a term referring to the country's robust network of small and medium-sized enterprises. These Mittelstand companies are renowned for their specialisation in niche markets, technological innovation, and emphasis on quality. Their success has played a crucial role in Germany's global competitiveness, making the nation an industrial powerhouse. These SMEs demonstrate the importance of fostering a diversified and resilient economic ecosystem (Federal Ministry for Economic Affairs 2022).
China: The Rise of SMEs in Emerging Economies:
In China, the role of SMEs in the nation's rapid economic development cannot be overstated. The transition from a centrally planned economy to a more market-oriented one has seen the rise of countless small businesses, contributing significantly to job creation and poverty reduction. The Chinese government has actively supported the growth of SMEs through various policies, recognizing their vital role in sustaining economic momentum (Moore Advisory 2021).
India: SMEs Driving Inclusive Growth:
India, with its diverse economy, has witnessed the crucial role played by SMEs in fostering inclusive growth. Small businesses in India contribute significantly to employment generation, particularly in rural areas. The government's initiatives, such as "Make in India" and "Startup India," aim to empower SMEs, recognizing their potential to bridge socio-economic gaps and propel the country towards greater economic prosperity.
What aids the exponential growth of SMEs around the world is the ease and accessibility of digital operations. In a world that’s becoming extremely industrial this means that the potential for SMEs to thrive is extremely high. The biggest form of their promotion would be through media coverage, trade shows, direct marketing, social media and SEO’s. In times such as Covid these small businesses could invest their money and resources in a trusted online presence with staying power, which attracts more consumers and helps your business expand globally. However, it also gave room for competition on a larger scale.
With events such as Covid the formation of more SMEs grew by 32% due to the job market being disrupted, leading to new entrepreneurship. Here are some findings that focused specifically on SMEs that accept card payments:
1. United Kingdom (101%)
2. United States (86%)
3. Australia (73%)
4. Germany (62%)
5. Canada (58%)
6. Italy (44%)
7. France (40%)
8. Japan (38%)
9. Brazil (35%)
10. Thailand (29%)
Post Covid there are approximately 3.73 million SMEs that run in Italy which is the highest amount out of any country in the European Union. In order to maintain these operations these SMEs would have to become resilient innovators.
References:
BMWK - Federal Ministry for Economic Affairs and Climate Action (no date) The German Mittelstand as a model for Success, BMWK. Available at: https://www.bmwk.de/Redaktion/EN/Dossier/sme-policy.html (Accessed: 14 December 2023).
McEvoy, O. (2023) SMEs in Europe 2023, by country, Statista. Available at: https://www.statista.com/statistics/558308/smes-in-europe-by-country/ (Accessed: 13 December 2023).
Our approach to small businesses (no date) European Bank for Reconstruction and Development (EBRD). Available at: https://www.ebrd.com/small-business-support/our-approach.html (Accessed: 13 December 2023).
Staff, U.S.C. (2023) The state of Small Business in America, The State of Small Business in America | U.S. Chamber of Commerce. Available at: https://www.uschamber.com/small-business/state-of-small-business-now (Accessed: 14 December 2023).
Top 10 nations with fastest small business growth – and why it matters (no date) World Economic Forum. Available at: https://www.weforum.org/agenda/2021/11/here-are-the-top-countries-enjoying-the-largest-growth-in-small-businesses-and-why-that-matters/ (Accessed: 13 December 2023).
Wang, E. (2023) Trends and growth of smes in China - moore - MS advisory, Moore - MS Advisory - Moore - MS Advisory is a financial advisory company based in China. We provide comprehensive accounting, tax, and corporate services in Mainland China & Hong Kong. Available at: https://www.msadvisory.com/trends-and-growth-of-smes-china/ (Accessed: 14 December 2023).
World Bank SME Finance (no date) World Bank. Available at: https://www.worldbank.org/en/topic/smefinance (Accessed: 13 December 2023).
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